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24 Sept 2018

Turkey’s Super Incentives Scheme: Large Package of Benefits Tailored to the Needs of Desired Investments

Turkey’s project-based incentive scheme, which came into force on 26 November 2016 pursuant to the Decree on Project-Based State Support for Investments, is a specific scheme providing possibilities greater than those provided under the already existing general, regional, priority, large-scale and strategic incentives schemes.

Hong Kong companies may like to know that the project-based incentives are not sector-specific and may be granted to investments with a minimum fixed amount of USD 100 million after an evaluation and assessment of whether or not they help reach the outcomes enumerated in the Decree, namely, meeting current or future critical national needs; ensuring security of supply for products which are not produced in sufficient amounts in Turkey; enhancing the technological capacity of Turkey; reducing dependency on imports in fields where Turkey has a trade deficit; creating high added value; manufacturing goods with novice technological methods; helping different sectors gain competitive power; accelerating technological transformation in related sectors; focusing on research and development; focusing on production of high added-value processed goods where Turkey has a trade deficit and there is scarcity of raw materials; and focusing on integrated production which would use raw materials extracted in Turkey.

Projects which are approved under this incentive scheme are published in the Turkish Official Journal, whereby the specific incentives provided to the project in question are also explained. Depending on the project for which an application is made, the following incentives and reliefs may be made available: customs duty exemption; VAT exemption; VAT refund; corporate tax reduction or exemption; social security premium support for the employer’s share; withholding tax support; qualified personnel support; interest or grant support; capital contribution; energy support; guarantee of purchase; allocation of land; infrastructure support; provision of exemptions from restrictive requirements such as licences, allocations, registrations, approvals etc. and adoption of regulatory measures facilitating legal and administrative processes.

Hong Kong traders should take note that, so far, 23 projects with a total value of ₺ 135 billion (approximately € 18.5 billion) have been included in the project-based incentives scheme. Among others, the integrated mining project of Tosyalı Holding, integrated livestock facility by Sütaş, new generation engine production project by Oyak Renault, base metal production project by Assan, transportation and defence industry investment by BMC, carbon fibre and composite materials production project by Dow Aksa, renewable energy technology investment by Ekore, medical equipment production project by Alvimedica, petrochemical production project of SASA, refinery project of Ersan, and electric battery production investment by Vestel may be regarded as examples of the broad scope of the new incentives scheme. These projects are expected to create 35 thousand direct and 134 thousand indirect jobs, and to decrease Turkey’s annual current account deficit by $ 19 billion.

The application process of the project-based incentives schemes differs from other incentive schemes. Pursuant to Article 4 of the Decree, certain companies may be invited to invest in certain areas or a general invitation for investments may be issued calling for investors to submit their applications to benefit from the scheme. Investors wishing to apply for the scheme must then complete Annex-1 of the Decree providing information on the investor as well as the project, and complete a feasibility report and an impact assessment for the project. Finally, investors are required to list the incentives requested and justify their request for each incentive item by illustrating the importance of the incentive for the investment, the effect of the incentive on the cash flow and return-on-investment of the project, and the proportion of total incentive amount to the total investment amount. Projects which are granted the incentives are subsequently published in the Turkish Official Journal. If the investment project does not qualify for an incentive under the project-based incentives scheme, it may be re-evaluated for qualification under one of the other main incentive schemes upon the request of the investor.

Hong Kong traders may also like to know that the investments supported under the project-based incentives scheme must be completed within a certain period of time. The timeframe for the completion of the investment is indicated in the approval decision published in the Turkish Official Journal. Except for reasons arising from the State, the investor remains the sole responsible party for completing the project within the timeframe determined in the approval decision. In addition, until the completion of the project, the sale and transfer of the investment is subject to approval, and the buyer may be allowed to benefit from the incentives on the condition that the project will continue so as to attain its objectives.

In case the investment does not take place or the undertakings on the basis of which the incentives are provided cannot be performed, the project may be re-evaluated for qualification under one of the other main incentive schemes upon request. If the project is subsequently re-qualified under another incentive scheme offering a lower amount of incentives, the amounts in excess which are no longer available will be requested from the investor.

Finally, the failure of the investor to perform its obligations under the approval decision may result in a claim by the government for collection of tax revenue foregone as well as other benefits granted under the scheme.

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